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How the Google-HTC Deal Boosts Alphabet’s Revenue Diversification

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Google getting 2,000 hardware experts from HTC

Alphabet’s (GOOGL) Google harvested some 2,000 hardware design experts from HTC, the Taiwanese hardware maker that worked with Google in the production of the first Pixel device. Google paid $1.1 billion to acquire the HTC’s smartphone design team.

The acquisition of HTC hardware talent marks another high point in Google’s hardware push. With its Pixel line of handsets, Google has stepped up competition with Apple (AAPL), Samsung (SSNLF), and a slew of Chinese (MCHI) manufacturers in the premium smartphone market. According to estimates by IDC, Apple and Samsung are the world’s top smartphone vendors.

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Control of device design

The team from HTC is expected to give Google more control over its hardware design, which could see it bring innovations to the market faster than in the past. This development could boost its competition with smartphone market leaders, leading to more device sales. Apple and Samsung drive smartphone sales by regularly upgrading their devices, allowing them to charge more for their products. Apple’s recently launched iPhone X costs $1,000 for the base model.

Revenue diversification

For Google, focusing on hardware fits into several strategies. In addition to hardware sales bringing incremental revenue, a hardware push also supports Google’s revenue diversification efforts. As we can glean from the chart above, Alphabet is primarily funded by advertising sales. This situation puts Alphabet’s future at risk if Google loses its online advertising lead. Google and Facebook (FB) control much of the funds that marketers spend on online ads.

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